To lock in or not to lock in (your mortgage rate)

February 6, 2009

Canadian homeowners typically ask us these two questions with regards to their mortgage rates:

• Should I lock in my variable-rate mortgage yet? (Short answer, no)
• Should I break my 5-year fixed mortgage to lock in a better rate? (Short answer, maybe)

In the past few weeks, mortgage rates have been moving down, swiftly. In fact, on November 20, 2008, our best 5-year rate was 5.59%, and nine weeks later, it's now at 4.39%. That's more than a subtle drop — and it's probably an indication that the world markets are experiencing some trouble.

Before these recent rate drops, there were a series of prime rate reductions, and, just as importantly, the federal government showed increased willingness to purchase Canadian mortgage pools. What that does is help to free up the banks' capital for more lending, and more lending typically helps to lower mortgage rates.

Not that these pools aren't well performing; they can be profitable transactions for the federal government. But with another recently promised $50 billion from the government for mortgage pools, it's a big-enough move that may push interest rates down even further.

So, with the latest rate trends, we've come up with a few rules-of-thumb to help make your decision easier:

• If you have a rate of 5.2% or higher and want our current 3-year rate at 3.75%, it will take less than 12 months to recoup the cost of the penalty for breaking your term.
• If you have a rate of 5.9% or higher and want our current 5-year rate of 4.39%, it will take less than 12 months to recoup the cost of the penalty for breaking your term.

At True North Mortgage, our highly-trained mortgage brokers always know exactly what the rates are doing, and have great advice to save you money on your mortgage.

Contact us online, over the phone, or at one of our convenient store locations — anywhere you are in Canada.